The announcement of a voluntary code of conduct for UK private equity has unexpectedly increased political pressure.
Initial reaction from politicians and unions is that the code does not go far enough.
This surprised some. Speaking on the eve of the announcement, one partner at a US firm predicted that the code would mollify critics: "The code will have some run-of-the-mill concessions, but it won't have a great affect on the market," she said. "It will do just enough to take the pressure off the market and, at least in the short term, quieten those calling for more disclosure."
Many agreed that the code would take the pressure off; instead the focus on private equity has returned.
One reason is that the code was reportedly watered down in the last few days. Speculation is that private equity houses spent the last week lobbying former Morgan Stanley chairman Sir David Walker, who drafted the code.
The code will ask 65 private equity-owned companies to publish extra information on their accounts ownership and prospects.
In addition, around 250 companies will need to produce an annual review. This includes listed companies sold to private equity for more than £300 million ($619 million) and unlisted companies bought for more than £500 million. To fall under the code, companies will also have to employ more than 1000 staff and generate over half of their revenues in the UK.
But the final code has some big changes from the consultative document Sir Walker published in July. That document suggested that each private equity company would have to produce attribution analysis, explaining whether returns had come from financial engineering, expansion or operational improvements.
The new code only asks for attribution analysis of the industry as a whole. The deadline for publishing annual results has also been extended from four months to six after year end. The interim deadline has been pushed back from two months to three after the half-year.
As IFLR predicted in March, it looks like the private equity code of conduct is a sop to public concern.
The same IFLR story suggested that despite the code being voluntary, the British Private Equity and Venture Capital Association (BVCA) would enforce compliance by threatening penalties, including expulsion. There has been no comment from the BVCA to confirm if this is still the case.